RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS
What is Risk? - Answer️️ -Uncertainty regarding loss
Objective Risk - Answer️️ -the relative variation of actual loss from
expected loss
Subjective Risk - Answer️️ -uncertainty based on a person's mental
condition or state of mind (diff...
What is Risk? - Answer✔️✔️-Uncertainty regarding loss
Objective Risk - Answer✔️✔️-the relative variation of actual loss from
expected loss
Subjective Risk - Answer✔️✔️-uncertainty based on a person's mental
condition or state of mind (difficult to measure)
objective probability - Answer✔️✔️-Likelihood that a specific result will
occur, based on hard facts and numbers
a priori - Answer✔️✔️-by logical deduction such as in games of chance
empirically - Answer✔️✔️-by induction, through analysis of data
subjective probability - Answer✔️✔️-- personal estimate of the chance of loss
- it need not coincide with objective probability and is influenced by a
variety of factors including age, sex, intelligence, education, and
personality.
Chance of Loss Distinguished from Risk - Answer✔️✔️-although chance of
loss may be the same for two groups, the relative variation of actual loss
from expected loss may be quite different
Peril - Answer✔️✔️-The cause of a loss (Fire, Hurricane, Tornado)
Objective Risk - Answer✔️✔️--Can be measured by using the standard
deviation or coefficient of variation
-Declines as the number of exposure units increase
Hazard - Answer✔️✔️-A condition that increases the frequency or severity
of a loss.
Physical Hazard - Answer✔️✔️-A physical condition that increases the
chance of loss.
Examples: Icy Streets, poorly designed intersections, and dimly lit
stairways.
Moral Hazard - Answer✔️✔️-Dishonesty or characteristics of an individual
that increases the chance of loss.
Example: You have not insured your house from any future damages. It
implies that a loss will be completely borne by you at the time of a
mishappening like fire or burglary. Hence you will show extra care and
attentiveness.
Attitudinal (Morale) Hazard - Answer✔️✔️-Carelessness or indifference to a
loss, which increases the frequency or severity of a loss.
Examples: Suppose a person pays insurance for his new phone. Morale
Hazard arises when the model of his phone becomes outdated, and he no
longer cares about it.
Legal Hazard - Answer✔️✔️-Characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.
Example: A court notice about a property, dispute of an insured person or
some other similar legal matter which could result in loss for the insured
and for which insurance company may have to pay.
Pure Risk - Answer✔️✔️-A situation in which there are only the possibilities
of loss or no loss.
Speculative Risk - Answer✔️✔️-A situation in which either profit or loss is
possible.
Diversifiable Risk - Answer✔️✔️-A risk that affects only individuals or small
groups and not the entire economy.
It can be reduced or eliminated by diversification.
nondiversifiable risk - Answer✔️✔️-A risk that affects the entire economy or
large numbers of persons or groups within the economy.
It cannot be eliminated or reduced by diversification.
Enterprise Risk - Answer✔️✔️-Encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk.
Personal Risk - Answer✔️✔️-Anything that exposes you to the risk of losing
something of value. Usually, the personal risk is associated with your
financial investments/insurance and personal health.
3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller SophiaBennett. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
